“The money that has poured into the pockets of profit-hungry financial institutions and private companies could have been much better spent directly on public service projects and infrastructure. PFIs are a rip-roaring example of out-of-control ‘bandit capitalism’.” (Gail Cartmail former Unite assistant secretary)
PFI was introduced in the early 1990s as a way of paying for the building, maintenance and operation of new and replacement public buildings, the greatest number of such contracts being in the NHS.
It uses private finance, that is, loans from banks and other private lenders, rather than government borrowing. Immediately, we know this would be expensive because governments can always borrow cheaply. The costs of private finance in the NHS has meant that one hospital was built for the price of two.
Under a PFI contract, a consortium of companies takes out a series of loans to build the hospital and each year the NHS Trust, pays an amount to the company, called a ‘unitary charge’ which covers repayment of the loans and the cost of running and maintaining the building.
There are 121 current hospital PFI projects under NHS England. They had a total initial capital cost of £11.6 billion and the estimated total cost of repayments is £79.3 billion.
In our local area, three hospitals have PFI with an initial capital cost of £277 million. In 2024-25 they will pay £79 million to the private sector, and over the lifetime of the projects nearly £2 billion.
| Project Name | First date of operations | Contract expiry date | Capital Value (£m) | Unitary charge 2023-24 (£m) | Unitary charge 2024-25 (£m) | Unitary charge 2025-26 (£m) | Dividends to share-holders 2023-24 | Total Repayment (£m) |
|---|---|---|---|---|---|---|---|---|
| Queen Elizabeth Hospital (Woolwich) | 2000 | 2030 | £96.10 | £23.75 | £24.35 | £24.96 | £3.8 million | £760.64 |
| Riverside Building (University Hospital Lewisham) | 2006 | 2036 | £58.00 | £10.80 | £11.18 | £11.37 | £2 million | £310.31 |
| Princess Royal Hospital (Bromley) | 1999 | 2037 | £122.90 | £43.14 | £43.71 | £43.94 | £5.2 million | £909.89 |
| Totals | £277 million | £77 million | £79 milliion | £80 million | £1,980 million (nearly 2 billion) |
PFI costs and the cost of drugs
The amounts paid to companies through PFI contracts are about 2% of the total budget of the NHS but for many hospitals it is 10% or more of their annual budgets. Some of these are spending twice as much on PFI payments that they are on drugs. Locally in 2023-4 the two hospitals in the Lewisham and Greenwich Trust paid £34.5 million on PFI payments and the costs of drugs for the Trust came to £49.5 million.
Peak payments
NHSE is at peak payments on PFI. The chart below shows the total payments rising from the late 1990s and from 2025 to 2035 repayments hit a high of £2.5 billion per year. As many of the contracts end, the payments reduce significantly. Nevertheless the total amount outstanding is still about £50 billion.
How a PFI works
- A hospital calls for tenders for its building project
- A consortium of private companies, usually a big construction company plus two infrastructure investment companies wins the contract.
- This consortium, now a ‘special purpose’ company arranges loans from major banks.
- The companies in the consortium also provide 10% of the needed finance. This part of the loan is charged at an interest rate of between 8% and 15%.
- The consortium contracts other private companies to provide services for the new building. These are maintenance services, usually provided by the construction company in the consortium, and ‘soft’ services – including cleaning and catering.
- The hospital pays the consortium a ‘unitary charge’. This combines repayment of all the loans with payment for the various services. These represent about half of the unitary payments, meaning that just half of the total repayments are repayments of the loans.
An orgy of thieves
A host of parasitic companies are in it to secure a steady income stream for their investors. Money is continually leaking out from the NHS into the private sector and away from patients.
Those profiting are the offshore infrastructure funds and construction firms which own the consortia, the financial institutions extending the major loans, the construction and servicing firms which win the service contracts.
The biggest thieves are the owners of the consortium (the SPV)
- 10% of the finance for the hospital comes from the owners of the consortium and the interest they charge is at 10 – 15%.
- Shareholder dividends. One estimate is that up to 10% of the unitary charge is diverted into shareholder dividends for members of the consortium.
- These profits derive mainly from the difference between the money paid by the NHS Trust as part of the unitary charge for services (maintenance, cleaning etc, part of the unitary charge) and the money the consortium actually pays to the service contractors. The difference can be very high – up to 30% of what the hospital pays for services become gross profits of the consortium.
- Directors fees – £47.6 million paid between 2004 and 2021
- Profit from selling on shares in the SPV on international markets: this can double the actual rate of return realised by the offshore funds.
The thieving is open
The consortium can charge almost anything it wants for any service that the hospital needs which is not specified in the contracts. So a Sheffield hospital was charged £5,500 for a replacement sink.
The other pigs at the trough are:
- International banks. They get a steady income stream, protected from inflation and interest rate rises.
- Accounting and consultancy firms. The costs of the tendering process are hiked by the consultancy firms : in the Labour government’s PFI programme consultancy firms may have earned £4 billion advising on PFI deals.
The impact on the NHS
- PFI payments are ring-fenced – a hospital is bound by contract to pay: defaulting would lead to legal cases. So as hospital finances are squeezed the lenders and the shareholders are never affected. This is a major cause of the all hospital financial problems today.
- In addition to paying the unitary charge hospitals must pay consultants and employ staff to tender for the contract, agree and monitor the contracts. This cost has never been quantified. It is a complete diversion of personnel, time and cost from patient care.
- PFIs became unaffordable for many hospital trusts. In South East Lewisham the impossibly high PFI debts of QEH and Princess Royal hospitals lead to a crisis. The solution of the ‘administrator’ appointed by the government was to merge those two hospitals with more solvent ones. So QEH was merged with Lewisham and Princess Royal was merged with Kings and Queen Mary’s Sidcup. In the case of Lewisham hospital the campaign saved the threatened maternity and A&E departments: Queen Mary, which the local campaign refused to support, is now a shell of its former self.
- The PFI programme was a major driver of privatisation – of the maintenance of buildings and of the provision of a wide range of services which are called ‘ancillary’ but which are fundamental to the safe and healthy operation of a hospital including cleaning, laundry, catering, portering.
- Like all privatisation, this is associated with poorer service, and fragmentation of the overall provision within the hospital. See Privatisation.
- The buildings themselves have been riddled with poor construction including fire safety breaches and water contamination, sometimes leading to the closure of whole wards.
- PFI-built hospitals frequently had fewer beds than the hospitals they replaced, cutting bed numbers by up to 30% in the hospitals affected. In turn this process has contributed to the long waits in A&E.
We say
- The government should cancel the outstanding loan repayments of all PFI hospitals: they have paid enough already.
- All services – maintenance of building and ‘soft’ services such as cleaning must be brought in house.
- Failing cancellation of the debt the government should legislate to ensure that creditors take their share of the financial constraints on the NHS.
See also: Private Finance in the NHS – we own It
See also: PFI and the National Health Service in England Allyson M Pollock, David Price, June, 2013
See also: 2018 exhibition on PFIs – How come we’re still paying for it (pdf)